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GASB 67 and 68: Questions Remain on Reporting of Government Pension Liabilities
Not since the implementation of Government Accounting Standards Board (GASB) Statement No. 34 have new state and local government reporting requirements received the attention or required the planning of GASB Statements No. 67 and No. 68. Since these statements on the reporting of pension liabilities were issued late in 2012, governmental financial officers, the American Institute of Certified Public Accountants (AICPA), ratings agencies, and other stakeholders have been reviewing the information in preparation for implementation in 2014 and 2015.
As a result of this increased scrutiny, several reporting and auditing questions have emerged, leaving stakeholders searching for solutions to effectively implement the new rules. Common questions concern the choosing of a “measurement date” and gathering of reliable and verifiable information on which to base reporting.
Choosing a measurement date
One of the topics that governments should be planning for is the determination of a measurement date. The new standards require employers to recognize a net pension liability (or asset) at a date no earlier than the end of the employer’s prior fiscal year. The employer must consistently apply this date from period to period.
Total pension liability should be determined by a) an actuarial valuation as of the measurement date, or b) the use of update procedures to roll forward to the measurement date amounts from an actuarial valuation no more than 30 months and one day earlier than the employer’s most recent fiscal year-end. The measurement date for most governments will likely correspond to the pension plan year-end. In this case, employers with the same fiscal and plan year-end must choose the measurement date as of their prior or current year-end.
When determining the measurement date, financial managers should keep in mind:
- Employer contributions made to the pension plan after the measurement date but prior to the employer’s fiscal year-end should be recognized as deferred outflows of resources.
- Governments should coordinate with the pension plan to determine when information is needed. In other words, if a government with the same year-end as the plan intends to use the current fiscal year-end as the measurement date, it should verify that plan information will be available when it is needed.
Governments should consider current and future financial reporting timing requirements (such as regulatory, debt, health care, and board/governance deadlines) when determining the measurement date since the date must be consistent from one period to the next.
Cost-sharing, multiple-employer plans
Prior to GASB 67 and 68 being issued, many parties expressed concern with how cost-sharing and agent employers will obtain reliable and verifiable information on which to base their reporting. Many of these questions linger for governments that participate in cost-sharing, multiple-employer plans. The primary issue is getting the information necessary to record a net pension liability and information to support the amount recorded for audit purposes.
As those who participate in these plans are aware, GASB 68 requires governmental plan participants to recognize a liability for a proportionate share of the net pension liability. However, the standard does not dictate who should determine the allocation of the net pension liability — the plan or each individual government participating in the plan.
In calculating the proportionate share, the standards encourage the use of the employer’s projected long-term contribution effort, rather than the total projected long-term contribution effort of all participating employers. If it is determined that the participating governments are to calculate their allocation of the net pension liability, audited financial statements of the plan are not likely to include the necessary information to calculate allocation percentages based on the authoritative literature available today. In addition, by using such projections, the allocation may be difficult to audit.
Administrators of some state public employee retirement systems are strongly considering including the needed information as supplemental schedules to the plan’s audited financial statements.
Agent multiple-employer plans
There are additional obstacles for employers participating in agent multiple-employer plans. For these employers, audited plan information does not include the actuarial information to be used for the required accounting adjustments and note disclosures. In addition, the financial statements do not currently include each employer’s interest in the fiduciary net position. Allocation of fiduciary position reported by the plan to the employers is unaudited, and as such, the auditors of governments participating in such plans would be unable to rely on the plan's financial statements.
Governmental employers would need a wealth of information to properly record the net pension liability, deferred inflows and outflows based on investment experience, and other amounts, and yet, this information would not be available to them through the plan’s audited financial statements.
Some are suggesting that a potential solution is to have the plan actuary issue separate actuarial reports for each participating employer. Still, the ability of the plan’s actuary to provide such services would first need to be considered.
Other issues for agent multiple-employer plans include:
- Differentiation of actuarial assumptions for each participating employer
- The ability of the employer’s auditors to evaluate the appropriateness of actuarial assumptions
- Communication between auditors and the plan actuary
With both the cost-sharing and agent multiple-employer plans, we encourage state and local governments to proactively coordinate on-going communications with the plan sponsors, as numerous decisions will need to be made between now and implementation dates. Employers should also include auditors in these communications to ensure they are in agreement with any decisions reached.
GASB implementation guides
With these and other questions being posed and implementation dates approaching (fiscal years beginning after June 15, 2013 for 67, and fiscal years beginning after June 15, 2014 for 68), GASB began a project in September 2012 to develop implementation guides. The first guide, focused on plan implementation issues (including the calculation of the net pension liability), is scheduled for release in June 2013. The second guide, focusing on additional questions related to employer-specific requirements in Statement No. 68, is set for publication in January 2014.
In addition, the AICPA’s State and Local Government Expert Panel is analyzing the standards to determine what actions and auditor guidance will be needed. The AICPA will be communicating the significant implications for preparers and auditors via web events, email communications, risk alerts, and articles. Eventually, the AICPA Audit and Accounting Guide, State and Local Governments will be updated.
CliftonLarsonAllen is closely monitoring the clarifying guidance as it is being released and encouraging our governmental clients to begin communicating with plans, actuaries, and auditors so they are properly prepared prior to the implementation dates.